Why Chesapeake Energy’s Stock Continues Its Downtrend


Apr. 24 2017, Published 2:38 p.m. ET

Chesapeake Energy stock

Chesapeake Energy’s (CHK) stock continued to deteriorate last week with a 4.2% daily decline on Thursday, April 13, 2017. CHK stock has fallen 20.2% since the beginning of 2017, generally mirroring natural gas prices (UNG)(UGAZ).

Natural gas prices have fallen ~7% since the beginning of the year while crude oil prices have fallen 5% in the same period. Chesapeake Energy also underperformed the Energy Select Sector SPDR ETF (XLE), which has returned approximately -11% year-to-date.

The S&P 500 ETF (SPY) has returned ~4.2% during the same period. The energy sector (XLE) makes up ~7% of SPY. CHK makes up ~0.50% of XLE.

As much as CHK’s stock had shown signs of improvement since late March this year, trending upwards and tracking natural gas prices (UNG)(UGAZ) higher, the recovery was short-lived. The stock started declining again, imitating natural gas prices.

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What could have caused CHK stock to drop?

As the chart above shows, the downtrend in crude oil (USO)(UCO)(DBO) and natural gas could have caused CHK’s stock to drop. Given that CHK has been focusing on oil growth this year, oil prices could weigh heavily on the company’s future.

Investor concerns surrounding CHK

Chesapeake Energy (CHK) plans to boost spending this year. To finance the spending, Chesapeake Energy would need sufficient cash flows. If it takes on more debt to fund its spending, it might not please investors.

One of Chesapeake Energy’s significant achievements in 2016 was its debt management efforts throughout the year. The efforts included a combination of debt exchanges, open market repurchases, and equity-for-debt exchanges. Asset sales were another key strategy that Chesapeake Energy used to reduce its debt.

Having said that, CHK continues to struggle under a huge debt load despite the various efforts it made in previous years.

Debt management remains a key goal for Chesapeake Energy in 2017. The company wants to achieve a net debt-to-EBITDA ratio of 2.0x by 2020 and retire debt of $2.0 billion–$3.0 billion.

Please read CHK Survived the Odds in 2016, but Can Investors Relax Now? to learn more about Chesapeake Energy.


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